Despite stock market rout, don't write off China just yet, say analysts

They point to bright spots in economy, urge taking more long-term view when investing

- Aw Cheng Wei

BEIJING - A stock market rout this week, on top of a drop in foreign direct investment (FDI) in China, has once again raised the question of whether the world's second-largest economy is "uninvestable".

On Feb 5, China's benchmark Shanghai Composite Index hit a five-year low of about 2,650 before the Chinese authorities' promise of policy support helped put a floor to the drop.

The battering of the stock market comes as FDI into China in 2023 shrank for the first time since 2012. FDI for 2023 fell by 8 percent to 1.13 trillion yuan (S$213 billion) from 2022, according to Chinese official data released on Jan 19.

Singapore's Temasek, for example, narrowed its investments in China from 26 percent of its portfolio in 2019, to 22 percent in 2023, according to its website.

But analysts warned against writing off China just yet. China remains a large market, they noted, with bright spots in its economy, namely in renewable energy and high-tech manufacturing. They also urged investors to take a more long-term view towards the East Asian giant.

But it is understandable why many feel hesitant about investing in China.

The country's benchmark MSCI China Index is down by more than 60 per cent from a peak in 2021, wiping out more than US$1.9 trillion (S$2.5 trillion) in market capitalisation in three years.

Business sentiments are gloomy. An American Chamber of Commerce survey released on Feb 1 found that about half of the 343 respondents across industries stated that they plan to decrease their investment in China or keep to their current stakes, given growing tensions between Beijing and Washington.

"China's economy just can't kick into gear," said economist Harry Murphy Cruise from consulting and research firm Moody's Analytics.